We propose a novel theory of endogenous institutional quality that links a country's incentive to invest in good governance with its intrinsic level of openness (due to population size, geography, or exogenous trade opportunities). We also provide extensive empirical evidence both on the key assumption of the theory - cross-border trade is more sensitive to institutional quality than within-country trade-and the key predictions - countries with a higher level of intrinsic openness tend to have better public institutions in equilibrium. Openness to goods that are more dependent on contracting institutions generates a bigger response. Our story suggests an indirect but important channel for globalization to improve welfare by raising the quality of institutions.